21 May 2002 Investment bank Merrill Lynch has agreed to pay a $100 million (€108.9m) fine as part of a settlement reached with New York Attorney General Eliot Spitzer over allegations that it misled high-tech investors.
An internal reorganisation at the bank and a “statement of contrition” are also part of the deal reached with Spitzer. Merrill Lynch analysts had been accused of misleading investors with upbeat equity research notes and stock ratings in a bid to boost stocks and win business for the bank with the hyped companies.
Spitzer had threatened Merrill Lynch with criminal charges, but the company stopped short of admitting responsibility. “We sincerely regret that there were instances in which certain of our Internet sector research analysts expressed views that at certain points may have appeared inconsistent with Merrill Lynch’s published recommendations,” the company said.
The revamp of Merrill Lynch’s operations is expected to result in the erection of ‘Chinese walls’ intended to separate analysts from investment bankers and prevent undue pressure being placed on analysts to write favourable reports for clients or potential clients.
The investigation carried out by Spitzer’s office into the business practices at Merrill Lynch – the largest stock broking firm in the US – lasted 10 months. It uncovered internal email messages sent by analysts that poured scorn on companies whose shares had been given a ‘strong buy’ recommendation.
Spitzer said last month that he was “absolutely convinced that Merrill Lynch’s rating system was tainted by conflict of interest.” The probe has also targeted Merrill Lynch’s competitors and is expected to constitute a blueprint for future settlements within the US financial services industry.
Merrill Lynch slammed over ‘biased’ research (11 April 2002)